Monday, October 06, 2008

Handout/bailout passes, markets plunge even more

Bound to happen. Why you ask?

Because the markets weren't afraid of the correction. They were afraid of government's reaction to a healthy correction.

It just goes to show you that Congress is really run by CNN hype-mongers.


Washington Post's Howard Kurtz looks at this, and comments on how journalists are told that "well, you don't have an MBA. Trust us." Had I been there I would have shot back and stated "well, you people seem to think that leveraging synergies in the enterprise is always a good idea."

The point is, this crisis is MBA and press-made. While the mortgage and investment derivatives markets were deregulated during Clinton's first term, there is blame for both parties here, and just as much blame on consumers for signing mortgage contracts that they either didn't read, didn't understand, or being so desperate that they'd bet their dream on a bubble. But you can't blame the consumer. Unless you don't want to win the election.

Think of this way. 50 years ago, it took a working family (that would be one bread winner) about 10-20 years to pay off a single family home. Today, it takes two bread winners 40 to 60 years, and was rising ever faster. Measuring costs and prices in working family years or average income years does put the prices of things into a clearer perspective.

Alas, this does not fit the view of neo-classical economics, nor does it fit the hype-and-hype strategies of the press or the MBA corps.

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Blogger Paul Hyland said...

You're going to love this, but the problem I have with this bailout is that I listen to the economists (not MBAs), who say we should just buy the f'in banks outright (OK, invest in them directly for a piece of equity, probably not the whole shebang in many cases), so as to get all the risks and rewards.

Now we buy bad paper at inflated prices, have some option to turn that into equity if things go south by a certain amount, but all the rules and loopholes make it a much less efficient way to inject money into the system than to simply directly invest in the banks. Bankers didn't really want Uncle Sam owning any more of them, so this was never seriously considered, but it's the surest bet according to many observers without a direct stake in the solution.

11:46 AM  

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